Top 4 Reasons Hard Money Could Be Your Best Funding Option

Let’s be honest, hard money gets a bad rap in the mainstream financial press. Critics love to point out that hard money loans come with higher interest rates and shorter terms. They rarely bother to explain why that is. Critics also find it difficult to admit that hard money does have its positives.

Hard money is so named because borrowers offer hard assets as collateral. The name has nothing to do with the myth that hard money loans are reserved only for people who have a hard time securing standard bank financing. If you’ve heard that one, forget it.

In reality, hard money is a valuable tool to investors, business owners, property developers, etc. Salt Lake City’s Actium Partners says that hard money is often a borrower’s best funding option. Here are the top four reasons explaining why:

1. Collateral Is King

At the top of the list is the fact that collateral is king in the hard money world. In other words, lenders like Actium Partners are not so concerned about W-2 income, tax returns, and credit scores. They are more concerned about the value of a borrower’s collateral.

A small-time property investor looking to buy a new rental property may have trouble borrowing from a bank because he has no W-2 income. As a sole proprietor under the law, he also doesn’t have annual profit-loss statements. But he does have collateral. That’s all hard money lenders need.

2. Loans Are Funded Quickly

Another big advantage of hard money is the speed at which it can be obtained. Banks and credit unions have certain ways of doing things, resulting in an underwriting process that can take months. You are all too familiar with this concept if you’ve ever purchased a house.

Hard money lenders do not have a complicated underwriting process. They don’t force loan applications to go through four or five departments for approval. What it takes banks months to do, hard money lenders can accomplish in days.

3. Fewer Documentation Requirements

Speaking about the underwriting process, banks have a bad habit of demanding a mountain of paperwork. Just when a borrower thinks there isn’t a scrap of paper left to be submitted, a new document request comes in.

Once again, hard money lenders do not play this game. Their documentation requirements tend to be significantly less. A borrower needs far fewer documents to complete a hard money application as compared to a bank application.

4. Total Interest Payments Can Be Lower

The final point is one that critics don’t like to talk about. They are more than ready to point out the fact that hard money lenders charge higher interest rates, but they don’t compare rates against terms. This is misleading, at best.

The biggest expense of any loan product is interest. A $100,000 loan at 4.5% for 5 years generates nearly $12,000 in interest payments. That same amount at 10% for one year generates just $10,000 in interest payments. Simple math makes it plain that a hard money loan with a short term could ultimately mean paying less interest. Even with a higher rate, total interest payments are lower because the term is much shorter.

There is no denying that hard money isn’t the best funding option for every person and funding need. But there is also no denying that hard money gets an undeserved bad rap. Hard money lending is not inferior to traditional lending. It is not the product designed only for people incapable of getting bank loans. Hard money is a legitimate form of financing that deserves a lot more respect.